Greece reportedly calls off referendum sending markets up

By: | 03 Nov 2011

In a day of extreme crisis for the eurozone, Greece has reportedly scrapped plans to hold a referendum on austerity measures, and Europe’s central bank made a surprise 0.25% cut to official interest rates.

SkyNews reports George Papandreou told his cabinet: “The referendum was never an end in itself. We had a dilemma – either true assent or a referendum. I said if the assent were there, we would not need a referendum”.

Papandreou’s government, and indeed Greek society, showed signs of collapse today amid ructions over the central bailout package. The nation was relying on the next tranche of aid by mid-November to meet both domestic and foreign liabilities, as €2bn and €1.6bn of treasury bills matured on 11 and 18 November.

Papandreou’s German and French counterparts Angela Merkel and Nicolas Sarkozy, whose coffers will stump up much of the aid package bill, showed exasperation ahead of a G20 conference in Cannes today, telling Papandreou the referendum, slated for 4 December, would effectively be a vote on Greek membership of the eurozone.

They urged him again to push through planned austerity measures, on which the rescue package hinges.

Papandreou’s hand may have been forced, in cancelling the vote, by the IMF saying it would withhold its delayed September tranche of Greece’s bailout cash until the outcome of the referendum was known.

As news spread, markets rose, and they had done so in afternoon trading, too, as they realised the likelihood of a ‘no’ vote by Greeks was increasingly unlikely.

By 1645 CET the Dax and Cac 40 were each up by 2.7%, and the FTSE 100 rose by 1.2%.

Ealier in the day the European Central Bank cut rates by 0.25% to 1.25% in an attempt to ease pressure on the currency bloc, and US President Barack Obama called for a rapid deal on the debt.

Azad Zangana, European economist at Schroders, said the 0.25% cut in the first meeting under new ECB president Mario Draghi, was “unlikely to have much of an impact on the real economy.

“Money market rates have been trading well below the ECB’s policy rate ever since the re-introduction of three-month liquidity auctions. The ECB is likely to take interest rates back to 1% in the coming months as we are unlikely to see a resolution to the Greek crisis anytime soon.”

Draghi said he expected a “mild recession” in the eurozone around the end of this year, and that inflation would remain above the ECB’s 3% target rate for some months.